Why should you expect a volatile market in 2022 explains veteran fund manager- Sankaran Naren

Indian bond yields go up when Fed increases the rate in the US. As this is going to happen in the coming years we will have a volatile market for the next couple of years.  

Sankaran Naren has 32 years of experience in the equity market who is an executive director and CIO of ICICI Prudential AMC. He has been with ICICI Prudential AMC for 17 years, started as a Fund Manager in 2004 and was promoted as CIO in 2011. In the recent interview with Economic Times, he has shared his market outlook for 2022 and explained why ICICI is cautious in the mid-term and comfortable with the long term. 

How is 2022 going to be different from the previous year?  

The market bull rally has a lot of dependence on US central bank decisions. In March 2020, they have pumped in the money which is favourable to the market but in 2022 tapering and aggressive rate hikes is about to happen, because of this more volatility is expected. 

On what front companies are valued in 2022? P/E or P/B or EV/EBITDA  

If you see quality stocks that are trading at a much higher valuation, there is not going to be a steep fall but there will be a correction it would trade sideways for some time and increase later since they have strong fundamentals. But if you see recent IPOs which is a great growth story, the concern is we don’t have is the long term corporate governance record. 

Why ICICI Prudential AMC is cautious about the mid-term, and be comfortable in long term?  

Indian bond yields go up when Fed increases the rate in the US. As this is going to happen in the coming years we will have a volatile market for the next 1-2 years. The current bond yield is 6.5% which is already high, this will shoot up again which is not good for the equity market. But in the longer term, this won’t majorly affect the market. The good thing is Indian IT companies are hiring on a big scale, employment opportunities have improved compared to 2-3 years back, which gives disposable income in the hands of people.  

Does this rate hike and tapering hasn’t factored in as it has been already announced? 

US Fed has just announced the rate hikes and tapering. The market has reacted to it and corrected it a bit but more implications would be there once they start implementing it. 

Do you agree with Shankaran Naren that the US Fed move will have more impact on the Indian market?